New report shows Government should reduce electricity prices ahead of electric steel future

13 November 2023

UK Steel has today launched a report showcasing the vast chasm between UK industrial electricity prices and what European competitors pay, setting out four recommendations to deliver competitive electricity prices for the UK steel industry.

After the two landmark declarations by UK steelmakers, Tata Steel and British Steel, that they will invest in electric arc furnace technology, competitive electricity prices become even more important. UK Steel welcomes the sector’s vision for new, modern steelmaking, but to maximise the value of these investments the industry will need affordable electricity supplies.

Steelmakers in the UK pay nearly two times as much as Germany and France’s industrial electricity prices. This is partly due to higher grid connection costs in the UK, which the Government could reduce further.

Steel production’s energy-intensive nature leads to high electricity consumption, and these costs can represent up to 180% of steel producers’ Gross Value Added (GVA) in the UK. With a switch to electric arc furnaces, it is expected that the sector’s electricity consumption will roughly double.

UK Steel makes four recommendations to cut prices:

1. Implement the British Industry Supercharger package by April 2024
2. Compensate industry for 90% of its network charges, matching French/German support levels
3. Wholesale market reforms, which could include splitting the wholesale market
4. Track industrial energy price disparities between countries

UK Steel Director General, Gareth Stace, said:
“Nearly every economy in the G20 boasts a strong steel sector, as our industry sits at the foundation of manufacturing and economic output. As our steel sector fully switches to electric furnace to reach Net Zero targets, we must not lose sight of how important electricity costs are in the move to green steel.

“While Government should be applauded for implementing the Industry Supercharger package, it doesn’t match what other governments provide for their steel industry. The average price faced by UK steelmakers for 2023/24 is £113 per MWh compared to the German and French prices of £61/MWh. That’s a price gap of £52/MWh, meaning we pay £117 million more for our electricity this year than our European competitors.

“We are on the cusp of the biggest transformation of the UK steel industry in decades. Government needs to enact our four recommendations to make the business environment even more attractive to invest here in the UK. With truly competitive electricity prices, the UK’s electric arc furnace steel industry will be here to stay.”

Notes

Contact details 

Louise Young, Campaigns and Engagement Manager, UK Steel 07388 370176 | Lyoung@makeuk.org

About the Industrial Competitiveness: Electricity prices faced by UK steelmakers report:  

• Steel production and processing is a highly energy intensive process, with energy making up a substantial proportion of the cost of converting globally priced raw materials into finished steel products for consumers.
• The average price faced by UK steelmakers for 2023/24 is £113/MWh compared to the German and French prices of £61/MWh. This indicates a price disparity of £52/MWh, meaning the industry will pay £117m more for their electricity than European competitors.
• The Government’s British Industrial Supercharger will reduce electricity prices by £29/MWh, leaving a price disparity of £24/MWh.
• The Government will only 60% network charges compensation compared to the 90% offered by Germany and France, leaving industry facing network charges over ten times that of their European counterparts.
• The UK steel industry’s electricity use is equivalent to 800,000 homes
• An electric arc furnace uses roughly 0.5MWh of electricity per tonne of steel
• The report can be downloaded at uksteel.org/electricity2023

For further information about the steel industry, please see the 2023 press pack, Why the UK needs a strong steel sector or the 2023 UK Steel Key Statistics report.